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Economic News, Data and Analysis

1999 More of the Same?

Another year, another chance to gaze into the crystal ball and make
some predictions for the coming year.

Just The Facts

 

 

1997

(1998 Predictions)
1998

(1999 Predictions)
Real GDP Growth* 3.9% 3.5%
Productivity Growth* 2.5% 2.8%
Unemployment Rate* 4.6% 4.3%
Growth in Avg Real Wkly Earnings* 3.1% 3.4%
CPI Inflation* 1.8% 1.5%
Federal Deficit* $188 Billion $113 Billion 
Savings Rate* 2.1% 0.9%
Interest rates (federal funds)* 5.46% 4.48%
Interest rates (morgage)* 7.6% 6.8%
Note: Most data is current through November.
Comparisons are made to equivalent period in previous year.

New Economy vs. Law of Averages

So, will the economy continue to do as well in 1998?  Just as last
year, there seem to be two camps on the subject.

The optimists believe that the battle against inflation has been won
and that some fundamental changes are allowing the economy to grow faster
without the threat of rising inflation.

On the other side are the pessimists who see the economy nearing the
upper end of its potential, and are waiting for something to break. In
particular, they are waiting for the tight labor market to force wage increases
as well as a burst in the stock market bubble.

Also, part of this second crowd are the true believers in the “Law of
Averages”. Everyone knows this law: if you flip a fair coin 10 times and
each time it comes up heads, the next time it’s almost certainly going
to come up tails (please note sarcasm in my voice!). Much economic reporting
seems to rely on this “Law” – how many times has the announcement of good
economic news been followed with “but how long can this go on…”? As such
this camp has seen a long streak of good years and believe that the next
will almost certainly see a downturn.

My predictions

What will 1998 bring for the economy? I must say that I’m skeptical
about my own ability to gaze into the crystal ball to predict the future.
The consensus forecast (I’m guessing here) is, just like last year, that
the economy will slow somewhat in 1999, but will remain fundamentally healthy.
This was the same forecast as 12 months ago, but the economy has kept up
with no slowdown yet.

For my own view, I’ve been somewhat surprised (again) by the lack of
an inflationary response to the strong economy – this seems to point to
the possibility that the current strength may be sustainable for the near
future. Of course, I wouldn’t be a good economist if I didn’t point out
the other side of things – I’d say that there is a decent (say 35%) chance
that inflation will blip up early in the year bringing Fed action resulting
in a slowdown by the third or fourth quarter. My other 65% says that 1998
will look a lot like 1997.

If you want my specific predictions – just replace “1998” in the table
above with “1999 predictions”.

See Also:

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